The Pareto Principle applies to a diversity of economic and business situations and states that roughly 80% of the effects are a function of only 20% of the inputs. This view is also commonly identified as the “80/20 Rule” or the “Law of the Vital Few”.
The 80/20 Rule is named for Italian economist, Vilfredo Federico Damaso Pareto who, in 1906, observed that 80% of the real property in Italy was held by only 20% of the people. Later on he recognized that a similar uneven relationship applied to other things as well (e.g., gardening).
Note that the 80% and 20% ratios are not absolute proportions; more accurately, it is simply the unequal allotment that is important.
1. Personal Considerations:
The Pareto Principle encourages you to stay constantly alert to the 20% of the possible daily actions that really matter. Given the intricacy of modern society, and especially the information overload introduced by the WWW, it is very easy to become overwhelmed and start putting your attention on things that (though they may be “urgent”) are not actually important in determining your business success or your profitability.
Reduce Your “Action List”
* Of all the entries on your “To-Do List,” only 20% are really critical.
* Delete things that are simply time wasters and are unimportant.
Focus on Your Strengths, Not Your Problems
* 20% of your activities will generate 80% of your outcomes.
* Use technology for those items that can readily be automated.
Stay Attentive to the 20%
*Identifying the critical 20% helps you spread your time efficiently.
* If problems do interfere, and something has to fall through the cracks, make sure it isn’t one of the decisive 20%.
The “80/20 Individual” takes the Pareto Principle seriously and applies its findings to everyday life and everyday tasks. S/he concentrates on – and takes advantage of – individual strengths.
2. Customer/Product/Service Considerations:
Interpret the term “Product” to include both tangible (i.e., physical) products as well as services and understand how the following generally accepted statistics might impact your business.
Discover Vital Customers & Best Selling Products and Services
* 20% of customers account for 80% of profits.
* 20% of products account for 80% of sales.
Settle Product and Service Troubles or Withdraw Them
* 80% of customer service problems center around the same 20% of products or services.
Drop “customers” that are really just kicking tires and don’t waste your time and resources on products and services that simply reduce your bottom line – draining time, energy, and money that could be better spent elsewhere.
3. Website Considerations:
Distribution is about getting the products to the customer, and in an online world, much of that distribution happens via one or more of your websites.
Identify Your Critical 20% Websites
* 20% of pages account for 80% of the visitors.
Discover Key Traffic Patterns
* More or less 80% of your viewers see only 20% of your website pages. (This stat holds true for both business to business and business to consumer, but may not hold true for pure content sites.)
Examine Your Web Traffic Logs
* You’ll observe that a limited number of keywords, search engines & websites give you the bulk of your traffic.
The Pareto Principle can help you as you optmize your pages and optimize traffic patterns.
4. Management Implications:
Small companies, such as the bulk of affiliate businesses, drive the nation’s economy. Your small business will benefit if you understand how Pareto’s Principle affects your outcomes.
Assess Your Sales Force (Including Affiliates)
* 20% of a sales force produces 80% of the annual results.
* The best 20% of any group is generally at least 16 times as useful as the remaining 80 percent.
Just as major corporations need to manage their employees, you’ll need to identify key performers, look after them, and encourage them if you want your business to be profitable.
5. Advertising/Marketing Implications:
Use Pareto’s Principle to help you make good choices about your marketing and advertising strategies.
Pinpoint Your Top Performing Ads and Marketing Campaigns
* 20% of your publicity will yield 80% of your campaign’s results.
* 20% of a marketing promotion will generate 80% of the outcomes, etc.
Find your winning ads, and the placements that produce the best results, then test – test – test, constantly improving them to make them even better.
If you’re managing a small, online business, you’ve probably already discovered that there are many demands for your attention at any given time. One of the most difficult challenges you’ll face each and every day is deciding how to apply your limited resources.
Reliable use of Pareto’s Principle will help you boost your business’ productivity and total efficiency, thus maximizing your profits.
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